DOUBLE BOTTOMS

Schlumberger Stalls At 50

08/29/03 08:14:43 AMby Arthur HillSchlumberger broke double bottom resistance at 47 way back in May, 2003, but cannot seem to shake this level for good.

Security:SLBPosition:N/A

Figure 1: Weekly chart of Schlumberger.

On the weekly chart, SLB bounce off support around 36 at least four times in 2002 and 2003. This built a solid base and the intermittent high (green arrow) made the pattern look like a double bottom, despite four support touches. With a sharp advance in April/May 2003, the stock broke above the trendline extending down from August, 2000 and exceeded resistance at 47 to confirm the double bottom. However, the stock has yet to completely exorcise this resistance demon as it has churned just below 50 for three months.

Turning to the daily chart, there is reason to believe that the falling price channel breakout signaled a continuation higher and the stock will break above 50. First, the advance from 36 to 50 did break double bottom resistance at 47 and forge a higher high. This is bullish and reflects strong buying pressure. Second, the decline back to 44.5 retraced to a Fibonacci level at 38% of this advance and formed a falling price channel. Both the retracement and the pattern are typical for corrections. The subsequent breakout at 48 (blue arrow) signaled a continuation higher.

Despite the weekly and daily chart breakouts at 47, resistance at 50 appears to be the real nemesis. The stock peaked at 50 in early June and again in late August. A large bearish engulfing pattern formed in late August (red arrow) and this was confirmed with further weakness. After the breakout at 47 and the August advance to 50, a throwback (short correction) can be expected. The decline to resistance-turned-support at 47 could be just that. As long as 47 holds, the stock shows strength and a breakout at 50 would be expected. Such a move would put the double bottom back in play and project an advance to the upper 50s. Conversely, another failure at 50 and subsequent move below 47 would be negative.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.